Trump vs Clinton Impeachment
Whether Democrats gain control of the House in the mid-term elections will likely determine whether impeachment efforts move forward against the President. For investors, these efforts could prove more problematic than the impeachment of President Clinton. This commentary very briefly outlines the impeachment process and then the reasons for the difference. In this commentary, we do not assume any impact from the Mueller probe.

Impeachment – the Process

The BasisThe impeachment process represents the only legal way to remove a president. Article II Section 4 of the Constitution gives the basis for such removal: “the President, Vice President and all civil officers of the United States, shall be removed from office on impeachment for and conviction of, treason, bribery, or other high crimes and misdemeanors.” In its history, the U.S. never experienced an involuntary removal of a president.

Power of ImpeachmentArticle I Section 2 of the Constitution gives the House of Representatives the sole power to impeach: “The House of Representatives shall choose the Speaker and other officers; and shall have the sole power of impeachment.”

The TrialArticle I Section 3 of the Constitution gives the Senate the sole power to try impeachments: “The Senate shall have the sole power to try all impeachments. When sitting for that purpose, they shall be on oath or affirmation. When the President of the United States is tried the Chief Justice shall preside: and no person shall be convicted without the concurrence of two thirds of the members present.”

Grand Jury and the Jury
Very simplistically, the House acts as the grand jury and the Senate as the jury. In the Senate trial, members of the House will act as the prosecutor with the formal title of managers. Attorneys will represent the President.

Interpretation and Appeal
Interpreting the words used in Article II Section 4 as the basis for impeachment can lead to important differences. The next question – can a conviction be appealed? The basis for appeal would reflect whether the House and Senate properly followed the standards for impeachment and conviction. The Supreme Court decided it should not review judicial impeachments. At the same time, the Supreme Court did not express a view in advance, whether a presidential impeachment and removal would be reviewable.

Trump Impeachment and Conviction – the ChancesPolitical experts project the mid-term elections could swing the House to a Democratic majority while the Senate remains in Republican hands. While a Democratic House could vote for impeachment, a two-thirds vote for conviction in the Senate does not seem likely.

The Clinton Impeachment — the Political DifferenceAssume the House impeaches the President but the Senate fails to convict. This outcome would prove similar to the impeachment and trial of President Clinton in late 1998 and early 1999. At that time, President Clinton was serving his second term in office and therefore could not run for reelection. In comparison, by serving only in his first term, President Trump can run for reelection. After impeachment but not conviction, it would still seem unlikely that the president could easily seek renomination and reelection.

Similarity with President Ford Running after the Nixon ResignationThe circumstances for Trump or a Republican nominee would seem somewhat similar to those faced by President Gerald Ford after the resignation of President Nixon. In that presidential election, Ford, the unelected incumbent, lost to Jimmy Carter. In our view, Republicans would face a similar and very challenging election campaign.

The Chances a Left Wing Populist Replaces a Right Wing Populist as PresidentWith the apparent swing of the Democratic Party to the left, it could easily run a left wing populist for President in 2020. If successful, ironically, a left wing populist President would replace a populist of the right. This result would likely produce a significant change for both economic policies and therefore, financial markets. How severe would depend on whether the Democrats controlled both the House and Senate as occurred during President Obama’s first term.

Left Wing Populist Changes – Higher Spending and Taxes – and New Tax SourcesLet us speculate on possible changes a left wing populist President and Congress could bring. In our view, such a swing might bring in major new spending programs — education and healthcare — resulting in even higher than the over one trillion dollar deficits currently projected. To offset such increased spending, higher personal and corporate tax rates would likely result thus reversing Trump’s overall tax reductions.
The increased deficits from new spending might also require entirely new sources of tax revenues. For example, a form of a value added tax could be one new program. With left wing populists focused on income and wealth inequalities, a second new source of government funding might even include a tax on wealth. At the same time, influential liberal tech billionaires would likely fight such a proposal – in our view – successfully.

Investment ConclusionsA tax on wealth would likely force many taxable investors to rethink their investment approach. For example, investors who principally focus on preserving capital might also think about how to “keep capital.” In countries where security of capital proves to be at risk, many turn to purchasing physical gold and diamonds to “keep” their capital. In the new age, digital currency may prove to be another means to secure capital for “good keeping.”
We recognize the low probability of enacting a wealth tax in this country. Despite that, we gingerly touched on this subject simply to alert investors to the possibility of more drastic change if the populist forces gain more political power after the 2020 Presidential election.

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